Impacts of Industrialization on Human Capital Formation in Ethiopia An Auto Regressive Distributed Lag Modeling Approach

Abstract

This study examines the impact of industrialization on human capital formation in Ethiopia from 1977 to 2022, focusing on tertiary education results, including enrollment and graduation rates. The research pursued the framework of endogenous growth theory by scrutinizing how highly the labor force is necessitated by structural changes. The major objective of this study is to evaluate the long- and short-term impacts of industrialization on human capital formation. Per capita gross domestic product urbanization, remittances, and the consumer price index are additional explanatory factors, while human capital formation is the dependent variable. Secondary time series data from the African Development Bank and World Bank are used. Preceding estimation, the Augmented Dickey-Fuller test confirmed the variables’ stationarity. The study used the Auto Regressve Distributive Lag model to investigate short-run dynamics and long-run stability, supplemented by the bound testing approach for co-integration. Results indicated that, in the long run, industrialization has significant positive impacts on human capital formation at the 10% level, urbanization at the 1% level, and remittances at the 1% level, while the Consumer Price Index has a significant adverse impact at the 1% level. The Error Correction Term has been used to verify the substantial speed of adjustment toward equilibrium. Therefore, policymakers should consider the enrollment and graduation rates of tertiary education’s industrial strategies to solve the existing skill mismatch between industrial strategies and the education sector, specifically tertiary education, to solve skills mismatches and realize sustainable economic transformation.